Stockpiling, Ghost Orders, and Temporary Warehouses: New Survival Rules for the Construction Supply Chain

Few seasoned professionals can recall a more difficult time than now—finding roofing materials, steel joists, or steel pipe has become extraordinarily challenging. Prices for these critical components have risen by at least 50% in a year, and lead times have at least doubled, sometimes longer. To survive, some contractors have begun stockpiling supplies.

Contractors are racing to lock in supplies before competitors. Cash is king, credit is scarce, and quotes are valid for as little as five days.

The ripple effects of the supply chain are forcing contractors to have every nail and screw on hand before breaking ground. They are leasing or building warehouses to stockpile materials while placing "ghost orders," which strains relationships with suppliers—who also need to maintain partnerships with loyal customers.

"This is as bad as during the pandemic," said Erin Roberts, global construction and engineering leader at Ernst & Young. "Demand surged after a brief pause, but supply chains were severed, and this is causing chaos."

Supply shortages, exacerbated by surging demand, have driven the largest annual increase in construction input prices since records began in 1987. According to an analysis by the Associated Builders and Contractors (ABC) of the U.S. Bureau of Labor Statistics' Producer Price Index, nonresidential construction input prices have surged by an average of over 24% in the past year.

"Inflation remains hot, hot, hot," said Anirban Basu, chief economist at ABC. "Contractors nationwide see no relief in sight this year."

The Associated General Contractors of America (AGC) quantified the predicament:

Construction professionals are playing the role of diplomats, managing owner expectations while coping with rising material and warehousing costs.

"I'd rather look at it than look for it," said Peter Tuffo, president of the Southern region at Suffolk Construction in Boston, referring to building material supplies. "We've gotten to the point where we're stockpiling materials and scrounging around. If we have to move it twice, we move it twice. But you know what? Moving it twice costs far less than having no work that month."

Long lead times

Chris Bailey, senior vice president of integrated solutions at XL Construction, measures the pain in months, listing the most scarce materials on the West Coast. "We recently learned that open-web steel joists are quoted into 2023," said Bailey from his headquarters in Milpitas, California. "Additionally, materials that typically took weeks before the pandemic now have lead times stretching to months."

The most challenging materials and lead times he faces include:

• Roofing materials and roof insulation (8-10 months)
• Steel joists (8-10 months)
• Metal decking (8-10 months)
• Aluminum windows and curtain walls (6-12 months)
• Precast concrete wall panels (6-10 months)
• Structural steel (6-8 months)
• Metal studs and cold-formed steel (2-4 months)

Roofing materials are now as scarce as hen's teeth.

Granger Hassmann, vice president of preconstruction at Adolfson & Peterson Construction in Minneapolis, is blunt: "The entire roofing industry is a mess right now, it's absurd. Manufacturers aren't even providing competitive quotes. Unless you actually place an order, they won't even bid."

EPDM roofing membrane, widely used in commercial buildings, is nearly impossible to find.

"Everything is getting harder to source, including anything with 'poly' in its name," said Paul Moffat, vice president of preconstruction at Detroit contractor Barton Malow.

Where did all the warehouse space go?

Companies scrounging for materials and trying to store them have caused another shortage.

"The national warehouse market is so tight that you almost have to sign a lease before or during construction to secure space... We've been reaching out to vacant big-box retail centers to fill the gap," said Amy Rodbell, a broker at commercial real estate firm Newmark's Atlanta office.

To survive, some contractors are building their own warehouses.

"They're putting up temporary structures on or near job sites to store materials, but this can eat up most or all of the savings from pre-purchasing," said Jacob MacIntyre, director of customer acceleration at Quickbase, who focuses on the construction market.

This has completely upended the construction industry's traditional lean operating model.

"Everyone has realized that we don't need 'just-in-time,' we need 'just-in-case,'" said Roberts of Ernst & Young.

The end of 'ghost orders'

Jake Romano, manager of a residential plumbing contractor outside Toronto, Canada, can't get anything from toilets to PVC pipe. "Some of our competitors have bought up nearly all the toilets on the market. Their warehouses are stacked to the rafters," Romano said.

Manufacturers are responding by limiting sales.

"It's a new-era way of saying, 'I can't fulfill your entire demand,'" said Chris Fitzgerald, global vice president at Univair Solutions, a chemical and sealant giant in Downers Grove, Illinois, which supplies some of the hard-to-get 'poly' products. If supply is limited, he might give a customer only 70% of last year's order volume.

Further down the supply chain, mid-tier suppliers are guarding against 'ghost orders'—where contractors request quotes from multiple suppliers for the same product.

Manufacturers "are pushing back, asking for project-specific information... to avoid a flood of ghost orders later," said Brian Sudduth, president of Miller Construction Co. in Fort Lauderdale, Florida.

The solution? Start earlier, work longer

In response, contractors are moving the preconstruction phase to 18 months before groundbreaking, nearly a year earlier than normal.

"We tell owners that once we start, we can still finish in 11 months, but we can't start immediately because a few months into the job, we'd have to stop and wait for steel," said Hassmann of A&P.

Now, that time is spent gathering materials.

"The first two months are spent placing orders to ensure materials arrive, or are stored in bonded warehouses or storage containers," Hassmann said. "Store as much as possible, make sure materials are secured and locked in."

No one can predict when the current supply chain crunch will end.

"Given current data, it might seem naive, but the expectation remains that later this year, building material prices will moderate," said Basu of ABC.

But others warn that as one shortage eases, another may worsen. They see little relief before the end of this year or next.

"Unfortunately, it's only going to get worse," said Moffat of Barton Malow, resignedly. "It seems like every month, some new material has a problem."